On January 1, 20X1, Brooks Energy issued $200 million of 15-year, floating rate debentures at par value. The debentures pay interest on June 30 and December 31 of each year. The floating interest rate is set equal to “LIBOR plus 6%” on January 1 of each year. The LIBOR was 6% when the bonds were issued and 8% on January 1, 20X2.
Required:
1. How much cash interest did Brooks Energy pay on the debentures in 20X1? How much will it pay in 20X2?
2. How much interest expense did the company record on the debentures in 20X1? How much will it record in 20X2?
